Notes on Donor’s Tax de Guzman, CL

Part 1. Law on Donations

Nature of Donation
Donation – is an act of liberality whereby a person (donor) disposes
gratuitously of a thing (properties) or right in favor of another (donee),
who accepts it. (Art. 725, New Civil Code of the Philippines)
Note: person maybe natural or juridical;
2 Types of Donation:
1. Donation Inter Vivos – take effect during the lifetime of the donor
and the donee. (Art. 729, NCC)
2. Donation Mortis Causa – take effect upon the death of the donor,
rules of which is under Succession (Art. 728, NCC)
Note: The fruits of the property from the time of the acceptance of the
donation shall pertain to the donee, unless otherwise provided by the
donor. (Art. 729, NCC)
The following are also considered donations:
1. Donation on account or merit of the services rendered by the donee to
the donor. (Art. 726 of NCC)
2. Gift imposes upon the donee a burden which is less than the value of
the thing given – insufficient consideration (Art. 726 NCC)
3. Irrevocable Donations vs. Revocable Donations
Irrevocable – without conditions and stipulations, thus donation.
Revocable – either resolutory or suspensive conditions.
Resolutory – the happening of the conditions make the donation
absolute. (Art. 731, NCC)
Suspensive – the happening of the conditions make the donation
effective. (Art. 730, NCC)
Note: Illegal or impossible conditions in simple and remuneratory
donations shall be considered as not imposed (Art. 727 NCC)
4. Incapacity to succeed by will (Art. 740 NCC)
Donation is governed by the provisions on Obligations and Contracts (Art.
732, NCC)
1. Unilateral contract – obligation is imposed on the donor.
2. Gratuitous contract – giving without any return
3. Voluntary contract – based on giver’s free will
4. Legal contract – not contrary to law, moral and public policy (Art. 727,
NCC)

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Donation is perfected from the moment the donor knows of the

acceptance by the donee. (Art. 734)

Persons who may give donations

General rule: All persons who may contract and dispose of their property may
donate (Art. 735 NCC), in other words capacitated to donate (Art. 737 NCC),
except those guardians and trustees to whom the property is entrusted (Art. 736
NCC), or those specially disqualified by law (Art. 738 NCC).
The following are void donations (Art. 739 NCC)
1. Those made between persons who were guilty of adultery or concubinage at
the time of the donation; the action for declaration of nullity may be brought by
the spouse of the donor or donee, which preponderance of evidence is required.
2. Those made between the persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants, and ascendants, by
reasons of his office;

Persons who may receive a donation

General rule: Donations to incapacitated person shall be void (Art. 743), except
–
1. Minors and others but acceptance shall be done through their parents
or legal representatives. (Art. 741)
2. Conceived and unborn children may be accepted by those legally
represent them if they were already born (Art 742)
Note: Donations of the same things to two or more different donees shall
be governed by the provisions concerning the sale of the same things to
two or more different persons. (Art. 744)

Acceptance of the Donation

1. The donee must accept the donation personally, or through an authorized
person (special or general power), otherwise, void. (Art. 745 NCC) The
authorized one is obliged to make the notification and notation (Art. 749 NCC)
2. Acceptance must be made during the lifetime of the donor and the donee.
(Art. 746 NCC)
3. The donation of a movable may be made orally or in writing. An oral donation
requires the simultaneous delivery of the thing or of the document representing
the right donated. If the value of the personal property donated exceeds P

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5,000, the donation and the acceptance shall be made in writing, otherwise,
void. (Art. 748)
4. In case of immovable, it must be made in public document, otherwise it is
void.
5. The acceptance may be made in the same deed of donation or in separate
document and done during the lifetime of the donor. If the acceptance is made in
separate document, the donor shall be notified thereof in authentic form, and
this must be noted in both instruments. (Art. 749)

Effects of Donations and Limitation thereon

General rule or principle: No person may give or receive, by way of donation,
more than he may give or receive by will, otherwise it is in officious (Art. 752);
However, it shall not prevent the donations from taking effect nor shall it
bar the donee from appropriating the fruits.
1. Future properties cannot be subject of donation (Art. 751, NCC); the donor
must be the owner or has a right over the properties at the time of donation (Art.
750, NCC)
2. Also, after donating the properties, he has sufficient means to support himself
and his relatives who need his support, otherwise, it can be petitioned by those
affected (Art. 750, NCC)
3. When a donation is made to several persons jointly, it is understood equal
shares, and there shall no right of accretion unless otherwise provided by the
donor. Right of accretion is applicable to the husband and wife jointly, if the
contrary is not provided by the donor. (Art. 753)
4. The donee is subrogated to all the rights and obligations of the donor except
in case of eviction and hidden defects. The donor is liable to such in case of bad
faith. (Art. 754)
5. The right to dispose of the donated properties may be reserved by the donor,
but if he should die, that property shall belong to the donee. (Art. 755)
6. The ownership of the property may be donated to one person and the usufruct
to another person (Art. 756);
7. The thing donated may be returned to the donor (reversion) provided this is in
favor of the donor; reversion may be stipulated in favor of third person provided
he still living, otherwise, it is void.
8. The donee is only liable to pay debts not exceeding the value of the property
donated, unless a contrary intention clearly appears. (Art. 758)

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9. The donee is liable when the donation is made in fraud of creditors. (Art. 759)
It is presumed in fraud of creditors if the donor did not reserve sufficient property
to pay his debts prior to donation.

Revocation and Reduction of Donations

1. The donations may be revoked or reduced by the following instances:

 The donor, after the donation, should have legitimate or legitimated

or illegitimate children, even though they be posthumous
(happened after death);
 The child of the donor, whom the latter believed to be dead when
he made the donation turn out to be living;
 The donor subsequently adopts a minor child. (Arr. 760)
2. The revocation or the reduction as stated above should only be made for the
excess of the properties that may be freely disposed by will. (Art. 761)
3. In lieu of the above, the donee shall return the thing or pay its value if he sells
the same, or if it cannot be returned. If the same is mortgaged, the donor can
pay the amount with a right to recover from the donee. (Art, 762)
4. The action for revocation or reduction shall prescribed after four years from
the birth of the first child, or from his legitimation, recognition or adoption, or
from his legitimation, recognition, or adoption, or from the judicial declaration of
filiation, or from the time information was received regarding the existence of
the child. (Art. 763).
5. The donation can be revoked by the donor when the conditions are not met.
Thus, the donee shall return the properties. Alienations and mortgages by the
donee are void, subject to limitations under Mortgage Law and Land Registration
Laws (Art. 764). The actions shall prescribe in 4 years from the non-compliance
of the conditions, may be transmitted to the heirs of the donor, and may be
against the heirs of the donee.
6. Revocation in case of ingratitude as follows: (Art. 765)
a. The donee commits an offense against the donor, its honor or property, or
his wife, or children under his parental authority;
b. The donee imputes to the donor any criminal offense unless the crime is
committed against himself, his wife or children under his parental
authority;
c. The donee unduly refuses to give support to the donor where the latter is
legally or morally bound to give support to the donor.
7. Alienation and mortgages effected before the notation of the complaint for
revocation in the Registry of Property shall subsist (Art. 766); however, the donor
shall have a right to demand from the donee of the value of the property
alienated or mortgaged (Art. 767).
8. The donee shall give the fruits of the thing donated and revoked from the time
of the filing of the complaint for revocation (Art. 768);

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9. When the reason for revocation is the non-compliance of the condition, the
thing donated as well as the fruits from the time of non-compliance shall be
given to the donor by the donee (Art. 768);
10. The filing of complaint for revocation due to ingratitude shall be filed within 1
year from the time the donor had knowledge of the fact of ingratitude, otherwise
prescribed (Art. 769); Without instituting the action, it should not be transmitted
to the heirs of the donee, likewise it cannot be brought against the heirs of
donee (Art. 770).
11. Reduction due to inoffcious as provided in Art. 752 shall only be filed by the
those whose legitime are affected. Reduction shall be governed by Art. 911 and
912 of NCC (Art. 771 and 772).
12. If there are two or more donations, the disposable portion is not sufficient to
cover all of them, those of the more recent dates shall be suppressed or reduced
with regard to the excess (Art. 773).

Part 2. Law on Donor’s Tax

General Concepts and Gross Gifts
Donor’s Tax (Gift Tax) – tax levied on the gratuitous (without consideration)
transfer of properties (real or personal, tangible or intangible) or rights by the
donor to the donee, who accepts it, during the lifetime of the former.
The Donor must not only transfer the ownership but also control over the
economic benefits of the property. Conditions attached must be fulfilled first to
take effect a complete donation.
Requisites of a Valid Donation (CIDA)
1. Capacity (only for donor, not with the donee); also include juridical person
a. Title of the ownership over the property or right being donated;
b. Legal age (at least 18 years old)
c. Literacy (not deaf-mute who do not know how to write)
d. Sanity or soundness of mind (consent is not vitiated)
2. Intent (for direct donation) – adherence to legal formalities of donation
a. Oral Donation – when personal property amounts to 5,000 pesos or
less, otherwise it must be in writing.
b. In Writing – when the property is immovable regardless of the
amount. It must be in public document.
3. Delivery – actual or constructive
4. Acceptance – acknowledgement either personally or through their
representatives. This is the time the contract of donation is perfected.

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Notes on Donor’s Tax de Guzman, CL

Void Donations
1. Future properties
2. Object of donation must not be contrary to law, moral, public order and
public policy
3. Legal Formalities not followed
4. Donation between persons who were guilty of adultery or concubinage at
the time of donation
5. Donation between persons found guilty of the same criminal offense in
consideration thereof.
6. Those made to public officer or his wife, descendants, and ascendants, by
reasons of his office.
7. Every donation between husband and wife during the marriage, except
moderate gifts which the spouses may give each other on the occasion of
any family rejoicing.
8. Indirect donation of spouses
Remunerative Donations – rewards past services as an expression of
gratitude, happiness, and or generosity.
1. Donor’s Tax – without pre-existing contract.
2. Income Tax – with existing contract
3. Estate Tax – the impelling cause Is the death.
Condonation or Remission – cancellation of debt.
1. Donor’s tax – without rendering services.
2. Income Tax – with rendering of services
3. Estate tax – the impelling cause is the death.
Motive that preclude the category of a transfer in contemplation of
death
1. To see the children, enjoy the property while the donor is still alive
2. To save on income taxes
3. To save property taxes
4. To make dependents financially independent
5. To see the family carry on the business in the family home
6. To settle family disputes
7. To relieve the taxpayer of the burden of the management
Donor is the payor of donor’s tax.
Valuation – same as estate tax
Taxpayer Classification and Tax Situs -same as estate tax
Purposes of Gift Tax – (1) To avoid payment of estate taxes; (2) To
compensate for the loss of income tax when large estates are split by donation
Transfer for Inadequate Consideration, the excess of the FMV at the time of
donation over the consideration received. Excluded is the real property classified
as capital asset, subject to final tax. If the transfer is revocable, in contemplation
of death, or under general power of appointment, it will be classified under
estate tax.

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Notes on Donor’s Tax de Guzman, CL

Renunciation of Inheritance, subject to donor’s tax if specifically, and

categorically done in favor of identified heir(s) or any other person (s) to the
exclusion or disadvantage of the other co-heirs in the hereditary estate.
Conjugal Donation, to be divided into two if consent is given by both spouses,
if not, will be out of exclusive property of the spouses.
Basis of Donor’s Tax – Net gifts in excess of P 250,000 during the calendar
year;
Donation to Relatives and Strangers – 6% of the basis of donor’s tax.
Donation to political partisan activities – shall be governed by the Election
Code.

Exemptions from Gross Gift

1. Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to any
political subdivisions of the said Government;
2. Gifts in favor of non-profit educational, charitable, religious, cultural, or
social welfare institution, accredited non- government organization, trust
or philanthropic organization or research institution. Provided, however,
that not more than 30% of said gifts shall be used by such donee for
administration purposes.
3. Encumbrance on the property;
4. Dimunition in the value of the property.
Donation Exempt by Special Laws
1. International Rice Research Institute
2. Ramon Magsaysay Award Foundation
3. Southern Philippines Development Administration
4. Philippines American Cultural Foundation
5. Integrated Bar of the Philippines
6. Development Academy of the Philippines
7. National Social Action Council
8. Museum of Philippine Costumes
9. Aqua-culture Department of South East Asia Fisheries Development Center
of the Philippines
10.Intramuros Administration

Administrative Provisions
Time of filing: Return must be filed within 30 days from the time of donation
and payment shall be made upon filing of the return;
Place of Filing: Except in cases where the Commissioner otherwise permits, the
return shall be filed and the tax paid to an (1) an authorized agent bank;
(2)Revenue District Officer; (3) Revenue Collection Officer; (4) duly authorized
Treasurer of the city or municipality where the donor was domiciled at the time

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Notes on Donor’s Tax de Guzman, CL

of the transfer or if there’s no legal residence in the Philippines, with the Office of
the Commissioner:
In the case of gifts made by a non-resident, the return may be filed with:
(1) Philippine Embassy or Consulate in the country where he is domiciled at the
time of transfer, or (2) directly with the Officer of the Commissioner.

Tax Credit – same as estate tax